Wages are expected to rise 3.5%

Workers hoping that their wage increases will beat inflation should find some cheer next year.

Employees are expected to see their paychecks grow by an average of 3.5% in 2007, according to projections by several compensation surveys.

That should beat expected inflation of 2% to 3%, continuing a shift that began in recent months as the labor market has tightened and energy costs have fallen. Wage increases had generally lagged behind inflation since the 2001 recession.

A salary bump of less than 4% does not look particularly generous, said Charles Peck, a compensation expert for the Conference Board, a New York business research organization.

"But when you look at it against inflation that's running under 3%, people are coming out ahead," Peck said.

In recent months, moreover, the rate of year-over-year inflation has slowed, from about 4% during the summer to 2% in the fall, according to federal data. That deceleration translates into real earnings growth, economists say.

Raises are being limited by rising costs for health insurance and other employee benefits, experts said. In addition, employers say global competition has forced them to hold down raises to stay profitable.

Premiums for employer-sponsored health coverage rose 7.7% in 2006, according to the Henry J. Kaiser Family Foundation. Although that figure represents the slowest premium rate increase since 2000, "working people don't feel like they are getting any relief at all because their premiums have been rising so much faster than their paychecks," Foundation President Drew E. Altman said.

Richard Greer, spokesman for the Laborers' International Union of North America, which represents 700,000 construction workers, said, "It's been a major struggle around the country to keep up with the cost of healthcare."

A trend toward rewarding top performers with incentives or bonuses may also account for the modest wage projections, as employers redirect money that could be used for raises to these one-time incentive payments, said Peck of the Conference Board.

The projected 3.5% average wage increase is based on surveys of employers by the Conference Board and business consulting firms including Hewitt Associates and Sibson Consulting.

Actual wage increases in recent years have come in lower than the projections. Surveys for 2005, for example, showed expectations that raises would average 3%. But average wages actually rose 2.6%, according to the Bureau of Labor Statistics.

The projected 3.5% average for 2007 is simply that. Some workers will earn a lot more.

Workers at the bottom of the income ladder in California will get a much bigger raise -- 11% -- when the minimum wage rises to $7.50 an hour Monday, up from the current $6.75.

Sixteen other states also are raising their minimum wage, according to the California Budget Project, a Sacramento policy research group focused on low- and middle-income earners.

Registered nurses, whose skills are in high demand, could also see larger pay increases, 5% to 6%, said Charles Idelson, spokesman for the California Nurses Assn., which represents about 75,000 nurses nationally.

The rules, in effect this month, will require publicly traded companies to disclose what their top executives are earning in pension income and deferred compensation. The rules will underscore the escalation of executive pay packages in recent years, said Myrna Hellerman, a senior vice president at Sibson Consulting, a New York economic analysis firm.

"Employees are going to react with a good deal of unhappiness," Hellerman predicted.